Poacher Turned Gamekeeper

By Richard C. Morais

Money is on the move. According to the World Retail Banking Report 2012, rich folk are frequently dismayed by the self-serving antics of their bankers and looking to move their accounts to new money managers. If you are among the seriously irked – fed up with your private banker but overwhelmed by the complexity of picking a new money manager – then Doug Black is a person you might want to call.

Source: Jennifer S. Altman for Barron’s.

MANHATTAN, NY, Aug. 15, 2012 Doug Black, President and Founder of SpringReef Partners, is seen outside The Fat Radish Restaurant in Manhattan, NY.

Black is the former chief operating officer of UBS Private Wealth Management who was sidelined during a management shuffle. In 2010, he left his employer of two decades to found SpringReef, a New Jersey-based consultancy for wealthy families. At the Fat Radish, a brick-walled and tasty locavore restaurant in New York’s Chinatown, Black explained why he didn’t stay on in private banking.

Since the dot-com bubble burst in 2000, the competitive pressures in the wealth industry have mounted to such a degree, he says, that the internal discussions at banks are entirely about “assets under management, advisor head count, and shareholder’s return on equity. The client has been left out of the equation.” As he once told a business associate, “There’s got to be a better way.”

There was. Today, Black uses his insider knowledge to teach rich folk how to ask the right questions of their wealth managers, how to find the hidden fees and make sure they aren’t getting overcharged, and how to find a wealth manager who can genuinely meet their sophisticated financial needs. He is part of a cottage industry growing around the family clamor for more transparency and more reasonable management fees in a low-return environment.

Black’s independent start-up currently has 30-plus clients, with assets averaging $50 million each. Many who seek out Black no longer trust their bankers, have interviewed a few other wealth managers in their search for the right new partner, but have been so burned by their experiences or muddled by what they have heard that they want Black to help them with the move.

“People come to me when they are unhappy or confused or both,” he says.

Black initially spends around two hours learning all he can about the client’s private-banking experience and understanding what they are looking for. For those who insist on changing their wealth managers, Black embarks on a rigorous screening process of firms with the requisite know-how and experience to handle the sophisticated demands of his client’s finances and particulars. Once a firm has been identified, Black negotiates his clients’ terms, typically cutting 20 basis points from published fees. He claims he has never failed to win a fee concession for his clients.

This former banker now believes that registered investment advisors have the best business model – with everything from independence, regulatory disclosures, use of third party products, and transparency of fees all building client confidence – but that only a tiny number of such independent advisors have the minimum $1 billion under management he requires before making a referral.

Isn’t he missing out, with such a high cut-off, on some great advisor talent? Yes, he says, but experience with the complexities of serious wealth is crucial. “I don’t want them to learn [the business] on my clients’ assets,” he says.

Over poached char and peeky toe crab, Black regaled me with some of the horror stories that have walked into his office: how his clients were shoved into banks’ mediocre proprietary products, despite claims of “open architecture,” and how many were charged premium rates for commodity products. In all such cases, clients simply “don’t know what to ask.”

Take fees. The key – particularly when third party products are involved— is to ask for the “all-in” costs; at times, three hard-to-see layers of fees can be lurking in a single financial product. Even for a pro like Black, it can at times be hard to get the full picture, but he keeps on asking pointed questions until the entire fee structure is revealed.

After analyzing one client’s portfolio, Black determined a bank was charging his client fees equal to 1.4% of assets. Black called the banker and calmly laid out why these fees were in excess of the industry’s norm for the account’s size and the service and products in question. The banker quickly cut the clients’ charges to 1%.

In this low-return environment, such a service can quickly pay for itself. Black charges $700 an hour for his time. Clients, nervous of open-ended assignments, sometimes ask for a flat charge, a 1/3 of which is payable up front. There’s a $5,000 minimum for Black’s services, but clients typically pay $12,000 to $15,000 per assignment. In contrast, a client with, say, a $50 million portfolio will save $200,000 a year in a case when fees have bee cut to 1% from1.4%.

Black initially thought customers would tap his expertise for the one-off switch to a new wealth manager, but he has since found a quarter of his clients keep him on speed dial, periodically asking him to sit in on meetings with their bankers. They pay Black to ask the rude questions, such as, “Why the bankers haven’t benchmarked their funds against more relevant and appropriate indexes?” On quarterly portfolio meetings, he frequently probes the precise “logic” of why, at that moment, the manager was changing a client’s asset allocation. Of course, that’s generally before Black questions “the competence of the third party solution” on offer.

Personally, I can see why a client might want to outsource such awkward questions. So much more pleasant. And, in certain cases, also a good return on investment.

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There are 5 comments

AUGUST 18, 2012 10:22 A.M.

TiredOfFlippingTheBill wrote:

We have a couple of advisers. We changed one of them a while back.

We weren't so much poached as we were driven away by this adviser/company. It got down to the screw me over once shame on you, screw me over twice and we were gone. The adviser we were using did not lose his job either, I guess us being a customer for over 20 years didn't matter either.

Several of our friends who we recommended by us to the previous adviser have also left his company and changed over to the new adviser -- dinner party talk. Dinner party talk has become different this year with the shaky economy, looming tax increases, and the presidential campaign.

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MARCH 26, 2015 8:01 P.M.

Nirav wrote:

I don't think anyone with $50MM would pay 1%, let alone 1.4%!!!

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About Penta

Written with Barron’s wit and often contrarian perspective, Penta provides the affluent with advice on how to navigate the world of wealth management, how to make savvy acquisitions ranging from vintage watches to second homes, and how to smartly manage family dynamics.

Richard C. Morais, Penta’s editor, was Forbes magazine’s longest serving foreign correspondent, has won multiple Business Journalist Of The Year Awards, and is the author of two novels: The Hundred-Foot Journey and Buddhaland, Brooklyn. Sonia Talati is Penta’s reporter about town, both online and for the magazine. She previously worked for the Wall Street Journal and various television station affiliates around the country. Sonia has a B.A. in economics from the University of California, Los Angeles, and an M.A. from Columbia University Graduate School of Journalism.